LUMA's State of Digital Marketing at DMS West 17 (with Commentary)

LUMA Partners
LUMA PartnersLUMA Partners at LUMA Partners
LUMA	presents	our	annual	State	of	Digital	Marketing,	which	covers	our	views	on	the	
market,	industry	trends,	and	the	future	of	the	ecosystem	with	a	specific	focus	on	
digital	marketing.	We	hope	you	enjoy	it.
Meet the Senior LUMA Team
Terence Kawaja Brian Andersen Mark Greenbaum Dick Filippini Conor McKenna Gayle Meyers
Founder & CEO Partner Partner Partner Vice President CMO
Terry leads strategy,
banking and content
for LUMA.
He’s also head
comedy writer and
Brian is LUMA’s
technology guru.
He excels at
coaching both little
league and big
Mark runs M&A
strategy and
execution for LUMA.
He’s never met a
term sheet he
couldn’t improve.
Dick leads LUMA’s
mobile and gaming
banking coverage.
You can find him
holding court every
February in
Conor ties it all
together, managing
LUMA's junior teams.
He also wrangles the
senior team
Gayle runs LUMA’s
marketing, events,
and partnerships.
Think of her as top of
the LUMA funnel.
LUMA's State of Digital Marketing at DMS West 17 (with Commentary)
LUMA's State of Digital Marketing at DMS West 17 (with Commentary)
The	period	since	the	presidential	election	has	been	solid	for	public	markets	overall,	with	
the	NASDAQ	up	~30%	over	the	last	twelve	months.	MarTech	continued	to	be	a	strong	
category	behind	Shopify’s continued	run,	which	is	up	over	150%	to	nearly	$10	billion	
market	cap.	Ad	Tech	companies	had	also	been	trading	above	market	growth	until	
recent	Q3	earnings	missteps	hit	across	almost	all	the	players.
Look	– an	IPO	market!	Strong	equity	market	finally	welcomed	a	number	of	new	entrants	
last	year,	including…
Yesterday’s	debut	of	email	marketer	SendGrid,	which	priced	above	the	range,	to	a	6x	
trailing	multiple	before	rising	another	12%	in	yesterday’s	trading.
Which	has	us	wondering	who	will	be	next	with	a	number	of	scaled	players	queuing	up	in	
the	pipeline.
Along	with	new	entrants,	other	activity	has	really	reshaped	the	public	markets	for	Ad	
Tech	and	MarTech.	Let’s	face	it,	public	markets	have	been	fairly	unfriendly,	especially	for	
Ad	Tech.
If	we	look	back	5	years,	a	dollar	invested	in	the	NASDAQ	would	have	doubled	while	a	
dollar	invested	in	the	Ad	Tech	players	would	have	lost	almost	two-thirds	its	value.	This	
started	when	Millennial	Media	went	public	on	the	premise	of	mobile	and	then	promptly	
missed	its	first	quarter.
This	first	misstep	by	Millennial	Media	demonstrated	that	legacy	media	I/O	based	
models	lacked	the	predictability	public	markets	value	and	thus	tainted	the	followers	
even	as	business	models	evolved.	So	much	so	that	in	2014	we	published	“Color	by	
Numbers”	to	highlight	the	differences	and	valuation	implications	among	business	
models	ranging	from	network,	to	programmatic,	ultimately	to	true	SaaS,	which	public	
markets	appeared	to	struggle	to	differentiate.
2017	saw	the	Great	Ad	Tech	Cleanup,	with	all	the	remaining	I/O	based	businesses	
having	been	acquired,	leaving	a	public	company	cohort	with	platform	business	models	
providing	a	more	attractive	comp	universe.
So	that’s	a	lot	about	the	public	markets,	but	let’s	get	real,	M&A	remains	the	primary	
source	of	liquidity	and	remains	very	active.
Importantly,	looking	at	scaled	exits	over	$100	million,	we	saw	45	deals.
While	2017	lacked	some	of	the	+$1	billion	deals	of	the	prior	year,	we	saw	very	solid	exits	
across	Ad	Tech	and	MarTech	categories.
LUMA's State of Digital Marketing at DMS West 17 (with Commentary)
A	lot	of	what	is	happening	in	MarTech	is	being	driven	by	what’s	happening	in	the	
advertising	ecosystem.	Great	news:	digital	media	continues	its	growth.	Consumers’	time	
continues	to	shift	towards	digital	consumption	channels	and	ad	spend	continues	to	
However,	there	is	concern	that	Google	and	Facebook	are	taking	a	big	and	dominant	
share	of	the	growth.	The	Duopoly	has	over	60%	market	share	of	all	ad	spend	in	digital	
and	almost	all	of	the	growth.
If	this	trend	continues,	it	will	make	our	life	making	LUMAscapes a	lot	easier	since	it	will	
just	be	down	to	a	couple	of	companies,	or	maybe	three	with	new	entrant,	Amazon.
Speaking	of	Amazon,	this	company	has	produced	revenues	with	an	incredible	76%	
compound	growth	over	the	past	twenty	plus	years.	Compound	growth	like	this	for	20	
years	is	hard	to	do!
Amazon	is	an	absolute	beast,	and	the	market	is	recognizing	this.	The	stock	has	been	on	
a	tear	while	the	rest	of	retail	is	being	eviscerated	in	its	path.
One	of	Amazon’s	main	revenue	drivers	is	the	subscription	program	“Prime”,	which	now	
has	over	80	million	subscribers.	Not	only	does	Prime	provide	Amazon	a	predictable	
revenue	stream,	but	it	also	increases	the	average	amount	an	Amazon	customer	spends	
and	creates	“stickiness”.
Even	more	incredible	is	that	they	have	managed	to	circumvent	Google.	With	its	
ubiquitous	search	bar,	Google	used	to	own	the	the	top	part	of	the	funnel,	but	Amazon	
has	quietly	become	the	top	choice	for	searching	products	to	buy.	According	to	a	study	
by	Bloomreach,	over	half	of	shoppers	start	their	search	on	Amazon	rather	than	Google.
Amazon	is	well	on	their	way	to	being	a	major	player.	In	a	world	of	consumer	
touchpoints,	Amazon	has	an	amazing	array	of	abilities	to	interact	with	the	consumer,	
whether	it’s	through	the	e-commerce	app,	video	or	one	of	the	fastest	growing	and	
potentially	most	disruptive	new	forms	of	media,	voice.
Back	to	Facebook	and	Google,	who	own	almost	two-thirds	of	the	share	of	digital	ad	
spend,	leaving	a	paltry	37%	for	everybody	else.	However,	37%	of	a	$83	billion	market	is	
$31	billion,	which	is	still	pretty	big	and	it	is	not	static.	There	is	a	constant	shift	between	
players	in	that	slice	of	the	pie,	which	gives	new	players	opportunities	in	a	very	dynamic	
marketplace.	More	importantly	is	the	opportunity	coming	from	the	addressability	of	TV,	
an	enormous	market	where	the	Duopoly	have	substantially	less	share.
Combined,	digital	and	TV	is	a	$155	billion	market,	where	companies	outside	of	the	
Duopoly	control	over	two-thirds	of	the	market.
No	doubt	those	opportunities	are	one	of	the	reasons	why	this	sector	has	attracted	
acquisition	investment	from	a	wide	variety	of	deep-pocketed	strategics from	a	variety	of	
different	sectors.
At	the	beginning	of	2017,	reports	came	out	that	proclaimed	the	sector	was	finished,	
spurred	from	the	substantial	decline	in	venture	capital	investments	going	into	the	
sector.	What	these	reports	neglected	to	point	out	was	the	fact	that	while	venture	
capital	was	going	down,	private	equity	was	going	up	in	a	huge	way	with	over	$12	
billion	invested	in	Ad	Tech	and	MarTech	in	the	last	24	months.
Private	equity	is	much	later	stage	focused,	and	we	believe	is	evidence	that	we	are	
seeing	the	beginning	phases	of	the	maturation	in	this	industry.	This	is	incredibly	natural	
and	happens	in	every	industry.	Ad	Tech	is	logically	going	through	a	maturation	phase	
where	we	will	see	a	rationalization	and	consolidation	of	companies.
One	of	the	challenges	is	that	the	Ad	Tech	and	MarTech	ecosystems	are	massively	
fragmented;	5,000	companies	across	18	LUMAscapes.	We	did	a	four-year	lookback	and	
for	the	first	time	we	noted	that	there	are	more	acquisitions	than	there	are	new	
companies	appearing	on	the	LUMAscapes.	Net	consolidation	is	here!
To	think	about	the	market	opportunity,	let’s	look	at	fractional	math.	We	just	talked	
about	a	further	migration	towards	digital	and	this	big	opportunity	called	TV,	which	
represents	the	numerator	getting	larger.	At	the	same	time,	with	the	maturation	phase	
and	the	consolidation	of	players,	the	denominator	is	getting	smaller.	So	what	happens	
when	the	numerator	gets	bigger	and	denominator	gets	smaller?	Massive	wealth	
creation	for	a	few	companies.
The	need	for	differentiation	is	even	further	highlighted	by	these	changes,	provided	we	
don’t	blow	it.	By	this,	I	mean	there	is	an	epidemic	of	challenges	to	the	advertising	
supply	chain.	They’ve	been	there	for	a	while	but	now	they’re	garnering	consequences.
Mark	Pritchard,	CMO	of	Proctor	&	Gamble,	has	been	on	a	rampage.	He’s	been	on	a	tour	
for	the	last	year	talking	about	the	challenges	in	the	digital	advertising	ecosystem	and	it	
all	really	boils	down	to	one	thing:	trust.	This	is	a	real	issue	and	it	has	economic	
This	chart	illustrates	the	economic	impact	of	some	of	these	issues.	The	blue	bar	
represents	all	media	impressions.	Ads	are	served	to	most	of	it	and	blocked	for	others.	
You	lose	some	of	the	ads	served	to	fraud,	others	because	they	are	not	viewable	
depending	on	the	standard	and	so	on.	This	has	economic	consequences	because	the	
marketer	loses	everything	that’s	paid	for	but	not	seen	by	a	human	whereas	publishers	
lose	what	is	blocked	and	lost	to	fraud.
Proctor	&	Gamble	announced	they	pulled	back	$100	million	and	reported	that	it	had	no	
effect	on	growth.	This	is	extremely	troubling	when	you	have	the	largest	advertiser	in	the	
world	say	a	significant	drop	in	advertising	spend	didn’t	matter	and	should	serve	as	a	
call-to-action	to	accelerate	the	clean	up.
This	behooves	people	to	limit	vulnerability	to	some	these	exogenous	forces,	whether	it’s	
the	supply	chain	and	fraud	or	changes	happening	in	the	browser	environment	that	are	
limiting	your	ability	to	track	data	or	privacy	regulations.
It’s	the	last	issue,	Europe’s	General	Data	Protection	Regulation	(GDPR),	that	was	in	fact	
a	deal	rationale	behind	the	latest	significant	acquisition	in	the	sector	when	SAP	bought	
Gigya for	$350	million.	They	were	looking	to	“GDPR-proof”	their	business	with	Gigya,	
which	focuses	on	identity.
It	feels	like	we’re	in	a	scenario	where	MarTech	is	needed	to	heal	Ad	Tech.	The	problems	
of	Ad	Tech,	whether	it’s	fraud,	viewability or	the	verification,	are	being	solved	by	
companies	in	MarTech with	identity	capabilities.
We	believe	that	identity	is	the	core	of	marketing.	This	used	to	be	a	stack	where	you	
would	start	your	planning,	execute	campaigns,	measure	them	and	then	plan	again	the	
next	year.	Today,	it’s	a	real-time	circle	where	identity	is	at	the	core	and	works	to	join	the	
capabilities	and	data	from	Ad	Tech	and	MarTech	solutions	in	real	time.
LUMA's State of Digital Marketing at DMS West 17 (with Commentary)
We	like	to	remind	ourselves	that	marketers	are	not	looking	for	technology	for	
technology’s	sake.	They	are	instead	focused	on	one	overarching	goal:	to	drive	more	
revenues	at	the	lowest	cost.
From	the	large	marketing	clouds	to	the	start-ups,	technology	vendors	aim	to	assist	
enterprises	to	drive	more	revenues	by	optimizing	the	customer	experience	through	
delivering	the	right	message	at	the	right	time	to	the	right	person.
In	Ad	Tech,	obviously	the	right	message	is	not	getting	through	if	it	is	not	viewable,	or	is	
“viewed”	by	a	bot.	We	are	seeing	MarTech solutions	from	companies	such	as	Moat,	IAS,	
WhiteOps and	DoubleVerify provide	solutions	to	address	these	issues.	In	MarTech,	we	
feel	there	are	three	high-level	capabilities	necessary:	data,	identity	and	orchestration.	
Data	and	orchestration	enable	the	right	message	at	the	right	time,	and	identity	
solutions	enable	the	message	to	be	delivered	to	the	right	person	across	devices.
Since	there	are	different	dynamics	and	vendors	in	B2B	vs.	B2C	Marketing,	we	are	going	
to	address	them	separately.
In	past	presentations	we	have	discussed	the	critical	three	capabilities:	data,	identity	and	
orchestration,	which	marketers	must	assemble	to	coordinate	their	marketing	activities,	
and	integrate	them	with	their	execution	channels.
The	foundation	should	be	a	common	data	layer.
However,	MarTech has	long	been	a	“best	of	breed”	environment.	Therefore,	marketers	
utilize	many	channel-centric	systems	– each	with	their	own	data	store.	The	issue	with	
this	is	that	there	is	no	single	view	of	the	customer,	since	data	assets	are	distributed	and	
not	coordinated.
This	is	a	major	issue	for	marketers.	In	this	eMarketer survey,	there	is	broad	agreement	
that	a	single	view	of	the	customer	is	important.
However,	only	5%	of	respondents	claim	to	have	a	single	platform	that	manages	data	
across	multiple	channels.
So	that	raises	a	question:	If	marketers	need	a	single	view	of	their	customers,	what	
makes	up	the	customer	record?	It	is	information,	such	as	name,	address	and	purchase	
history.	It	should	also	include	additional	information	(consistent	over	time)	such	as	sizes,	
segments,	brand	affinities	and	income.	In	order	to	provide	relevant	communications	at	
each	point	in	time,	the	customer	record	should	also	include	more	dynamic	data,	such	as	
interactions	with	emails,	ads,	social	mentions	and	current	(or	recent)	website	browsing.
If	there	is	one	system	that	provides	the	single	view	of	the	customer	/	manages	the	
customer	record,	who	owns	this?
In	B2B	marketing,	it	is	clear.	The	customer	record	is	managed	by	customer	relationship	
management	(CRM)	systems,	such	as	Salesforce,	Microsoft	Dynamics,	Netsuite,	etc.	But	
there	has	not	traditionally	been	a	single	system	for	this	in	B2C	marketing.
But	we	feel	that	the	logical	B2C	system	for	managing	the	customer	record	is	emerging,	
which	is	the	“customer	data	platform”	(CDP)	category.	These	systems	pull	data	from	all	
the	data	silos,	normalize	it,	and	then	apply	intelligence	to	the	data	(typically	using	
machine	learning	/	AI	technologies)	to	determine	the	appropriate	next	action	across	
The	“CDP”	category	has	emerged	in	the	past	year	to	being	a	recognized	category.	We	
therefore	have	revised	the	Marketing	Technology	LUMAscape to	reflect	this.
In	general,	the	CDP	has	three	main	functions.	First,	it	collects,	normalizes	and	unifies	
data	from	a	variety	of	systems	such	as	email	platforms,	websites,	mobile	apps,	call	
center	logs,	eCommerce systems,	etc.	Second,	it	applies	intelligence	to	this	data	to	
segment	the	users	and	determine	the	next	best	action,	such	as	a	product	
recommendation	or	offer.	Finally,	it	syndicates	the	next	action	back	to	the	execution	
platforms	to	enable	the	interaction	with	the	consumer	across	touchpoints.
Therefore,	a	full-featured	CDP	will	enable	both	the	“data”	layer	and	“orchestration”	
capabilities	that	we	feel	are	critical	for	marketing.
We	view	the	CDP	category	as	having	two	main	segments:	commerce-focused	and	the	
other	applied	across	verticals.	Those	on	the	right	include	companies	that	were	founded	
as	a	CDP	(such	as	Lytics),	while	others	are	focused	on	data	collection/movement,	such	
as	former	tag	management	players	(Tealium)	as	well	as	mParticle and	Segment.	
Although	not	a	perfect	segmentation,	most	of	the	companies	on	the	left	are	DR	
focused,	while	those	on	the	right	are	more	brand-oriented.
A	final	comment	on	the	“orchestration”	layer.	The	large	marketing	clouds	currently	do	
not	have	a	system	that	can	be	classified	as	a	CDP.	However,	IBM,	Salesforce	and	Adobe	
are	all	touting	their	A.I.	capabilities	with	Watson,	Einstein	and	Sensei.	While	nascent,	
these	technologies	will	likely	serve	as	the	orchestration	capability	in	the	future	for	these	
However,	it	is	interesting	to	note	that	one	of	main	marketing	clouds	– Oracle	– recently	
panned	their	competitors,	saying	that	when	they	claim	they	are	in	A.I.	“most	of	the	time	
it’s	just	nonsense.”
Moving	to	commentary	on	B2B	marketing…
At	the	last	Digital	Marketing	Summit,	we	summarized	the	state	of	B2B	marketing	with	
this	slide,	where	we	saw	there	being	three	main	key	trends:	1)	the	adoption	of	account	
based	marketing	to	enable	the	right	message	at	the	right	time	to	the	right	accounts,	2)	
the	use	of	predictive	analytics	to	help	sales	teams	identify	and	engage	with	the	
accounts	with	the	highest	likelihood	to	purchase,	and	3)	the	convergence	of	marketing	
technologies	and	sales	technologies.	We	still	view	these	as	the	key	trends	in	2017.
The	one	area	that	really	unifies	these	trends	is	the	adoption	of	account-based	
marketing.	The	vendors	in	B2B	marketing	have	all	embraced	the	term	and	
methodologies,	and	are	actively	touting	their	capabilities.
We	are	often	asked	whether	we	feel	feel	the	Marketing	Clouds	will	“win,”	or	if	the	
market	will	stay	focused	on	“best-of-breed.”
To	start	with	the	marketing	clouds,	they	obviously	were	created	by	stitching	together	
multiple	acquisitions.
There	are	many	detractors	of	these	efforts,	with	questions	of	whether	marketing	clouds	
should	exist,	or	if	they	are	serving	their	customers	well	with	logical,	integrated	suites.
“Nonintegrated	tech	platforms”	is	the	leading	obstacle	to	integrating	marketing	
activities,	per	eMarketer.
And	it	is	not	surprising	that	marketers	still	largely	operate	siloed,	non-integrated,	best-
of-breed	systems.	Neeraj Agrawal	from	Battery	Ventures	(one	of	the	most	successful	
MarTech investors)	believes	that	this	is	due	to	the	inherent	nature	of	marketers	being	
focused	on	“incremental	lift”	from	each	system.	Due	to	this	mentality	(driven	from	their	
marketing	KPIs),	he	feels	marketing	tech	uniquely	will	always	favor	best-of-breed.
However,	there	is	a	case	for	the	marketing	clouds.	When	I	worked	at	enterprise	
software	companies,	we	consistently	heard	from	large	enterprises	that	they	prefer	“one	
throat	to	choke”	with	vendors	that	can	offer	pre-integrated	systems.	And	the	marketing	
clouds	are	showing	success,	with	Adobe	on	track	to	achieve	$2B	in	revenues,	and	
Salesforce	$1.2B	in	revenues,	from	their	marketing	clouds	in	2017.
Earlier	this	year,	Cisco	published	its	“Digital	Engagement”	stack	that	shows	all	the	
vendors	they	use	for	their	marketing	and	sales	activities.
If	you	break	down	their	stack,	they	have	essentially	used:	1)	their	own	technologies,	2)	
Adobe	for	their	“experience”	applications,	and	3)	best-of-breed	for	everything	else.
So	which	wins?	In	the	ultimate	cop-out,	we	believe	both.	As	long	as	the	marketing	
clouds	are	able	to	combine	complementary	assets	with	integrations	that	benefit	their	
customers	(as	Adobe	has	done	in	the	Cisco	example),	then	vendors	will	likely	opt	for	
these	suites.	However,	best-of-breed	vendors	will	always	thrive	in	emerging	areas	that	
enterprise	software	vendors	have	not	yet	addressed,	or	if	the	marketing	clouds	do	not	
provide	valuable	integrations	and	their	products	atrophy	over	time	(and	don’t	maintain	
their	best-of-breed	status	as	stand-alone	products).
The	mission	of	the	LUMA	Corporate	Partners	program	is	to	provide	education,	insights	and	market	
development	to	all	constituents	of	the	digital	ecosystem.	LUMA’s	Corporate	Partners	are	comprised	
of	leading	media,	marketing	and	technology	companies	for	whom	LUMA’s	leadership	team	provides	
strategic	advice	on	the	latest	industry	trends	and	a	fresh	perspective	to	aid	in	making	critical	growth	
decisions.	LUMA’s	proprietary	insights,	research,	content	and	events	initiatives	afford	personalized	
guidance	and	education	at	leadership	off-sites,	teach-ins	and	customer	events.	If	LUMA	can	help	
your	organization	sort	through	this	complicated	and	dynamic	sector,	contact	Gayle	Meyers,	CMO	at
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